Jobless insurance agency to reverse fraud directive after outrage

Apr. 16, 2013

Steve Arwood / Kimberly P. Mitchell/Detroit Free Press

Written by

Detroit Free Press Lansing Bureau

LANSING — The Michigan Unemployment Insurance Agency has rescinded a controversial October directive about the handling of fraud cases that led to a harsh grilling of the agency’s director by a Senate committee last week.

Lawmakers told UI Agency Director Steve Arwood last Thursday that they were outraged by the e-mailed directive from internal benefit services director Linda Karos because it was contrary to a law the Legislature passed in 2011 making unemployment insurance fraud above $3,500 a potential felony.

“Do you make it a habit of interpreting legislation for your own convenience?” Sen. Jack Brandenburg, R-Harrison Township, asked Arwood, who is also director of the Department of Licensing and Regulatory Affairs.

“You changed the legislation’s intent; don’t tell me you didn’t.”

Fraudulent unemployment insurance claims cost both employers and workers through higher insurance rates. The Legislature, in 2011, reduced maximum unemployment benefits to 20 weeks at $362 per week, meaning the $15,000 fraud threshold can’t be reached without using federal extensions to collect benefits for close to a year.

Arwood told the Senate Appropriations Subcommittee on Licensing and Regulatory Affairs that he signed off on the Karos directive as a temporary measure because of staff shortages after the UI Agency laid off about 400 of its 1,200 employees on Oct. 1. But “it was not a good decision,” Arwood said.

On Friday, a new directive was sent out, agency spokeswoman Lynda Robinson confirmed Tuesday. She said she referred a request from the Free Press for a copy of the new order to the department’s FOIA unit.

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But two people who reviewed the new directive but requested anonymity because they are not authorized to speak for the department said it stated:

The new directive referred officials to the agency’s fraud manual, which dictates attendance at civil fraud hearings before administrative law judges if the amount is $3,500 or more.

Brandenburg, who sponsored the 2011 bill toughening fraud enforcement, said Tuesday he commends Arwood for revoking the October directive, but believes the incident shows the need for more legislative oversight.

“I think this type of mentality exists in a lot of departments where they think they can do ... whatever they want, regardless of the legislative intent,” he said.

“We would have never known about this without the newspaper article.”

The Free Press highlighted a January hearing involving an employee who was fired by St. John Hospital after officials discovered she was collecting UI benefits while working nearly full-time. When the agency didn’t show up for the hearing as a result of the directive, Judge J.R. Wheatley said the state had abandoned its fraud claim.

He tossed out civil penalties of close to $12,000 and reversed an order canceling other unemployment benefits claimed by the woman.